Chris Joye on bogus RBA claims that there's not dangerous house price growth

Chris Joye on bogus RBA claims that there's not dangerous house price growth
Chris Joye on bogus RBA claims that there's not dangerous house price growth

The Reserve Bank of Australia is losing credibility every time it cuts and claims the world's dearest residential property prices are nothing to worry about, according to the Australian Financial Review columnist Chris Joye. 

Joye noted the alleged that "the likelihood of lower interest rates exacerbating risks in the housing market has diminished".

Yet auction clearance rates in our two largest cities, Sydney and Melbourne, which account for 47 per cent of the metro population, are back to boom-time levels, he noted.

Joye suggests while the RBA argues that much lower sales volumes in 2016 signal weakness, "this is likely more a reflection of a four-year boom exhausting supply."

He says after the numerous occasions since the RBA began cutting rates in earnest in 2012, the RBA has assured the community that excessively cheap money would not drive dangerous house price growth that undermines affordability or financial stability.

"The ensuing data have proven these predictions to be bogus," he suggested.

Since January 2013, home values across Australia's eight capital cities have risen at an annual pace of 8.8 per cent, multiples annual growth in wages (2 per cent) and core inflation (2 per cent). 

Joye noted, according to UBS, Australia's dwelling price-to-income multiple hit an historic high of 5.6 times in September 2015 and inflated to an unprecedented 5.7 times in June 2016.

"The reason the RBA has got the Aussie housing market so wrong so often is likely related to two facts.

"First, it has never dealt with an economy that is carrying this much debt, and hence interest elasticity, before.

"And, second, it has never dropped the cash rate this low, and would never have conceived of doing so when economic growth was running above trend and house prices were rapidly scaling record heights."

Jonathan Chancellor

Jonathan Chancellor

Jonathan Chancellor is one of our authors. Jonathan has been writing about property since the early 1980s and is editor-at-large of Property Observer.

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